Paper to be presented at the International Schumpeter Society Conference 2010 on INNOVATION, ORGANISATION, SUSTAINABILITY AND CRISES Aalborg, June

21-24, 2010

The Russian organizational phenomenon

Sergey Pyastolov Moscow State Regional University piasts@mail.ru Oleg Sudarev Moscow State Regional University sudarev-oleg@rambler.ru

Id: 477

THE RUSSIAN ORGANIZATIONAL PHENOMENON Sergey Pyastolov

piasts@mail.ru Moscow State Regional University 10a, Radio st., Moscow, 105005, Russia Fax: +7 495 2613149 Tel: +7 495 2233106 Oleg Sudarev sudarev-oleg@rambler.ru Moscow State Regional University 10a, Radio st., Moscow, 105005, Russia Fax: +7 495 2613149 Tel: +7 495 2233106

Paper presented for the 13th Conference of the International Joseph A. Schumpeter Society Innovation, Organisation, Sustainability and Crises Aalborg University, Denmark, 21-24 June 2010 Topic: Incentives and capabilities in the theory of organizations

Sergey Pyastolov, Dr. Economics, Chair of Economics, Moscow State Regional University, piasts@mail.ru Oleg Sudarev, Dr. Economics, professor of Economics, Moscow State Regional
University, sudarev-oleg@rambler.ru

The Russian organizational phenomena

Abstract Observations of the past and contemporary situations in Russia on meso and microeconomic levels make some experts suggest that there may be a special type of an organizational model offered for peer consideration. Moreover a more thorough analysis can prompt examples of the Russian model features dispersed among other national and organizational types. The cases observed in this paper give a possibility to check the validity of the proposed Helical Institutional Development Scheme (HIDS). The paper suggests that the HIDS might be regarded not only as a sketch of a decision making model. It may show the direction in which the dynamic institutional and organizational theory might develop: from the analysis of situations with the stable certainty (complete and perfect information) to the stable uncertainty and then to unstable uncertainty cases where peoples preferences and beliefs are changing. Within the HIDS frameworks the paper offers an explanation for the Russian organizations phenomenon and some recommendations for a successful management in contexts similar to those of Russia. Key Words: types of organizations norms organizational learning helical institutional development national organizational models Introduction Until recently there has not been a notion in scientific literature about a special system of organizational management found in Russia. Machine and professional bureaucracies, operating and administrative adhocracies (traced from Mintzberg, 1979), and J-firms (Nonaka et al., 1995) are usually sited as basic organizational archetypes. But recent observations show that more descriptions and definitions of organizational forms could be made. Thus a new "W-form" (Webform) is identified and analyzed by H.Pihl (Pihl, 2002) who also depicts the variety of definitive contributions from other authors for multinational enterprises (Pihl, 2002: 2). Still it is rather difficult to adhere to a certain taxonomy under radically changing economic and social conditions what indeed continues to be one of the main Russian economy features. It is also worth noting that one needs a combined complex method to describe complicated phenomena which depend on quite a few economic, social, historic and cultural factors. Thus the research field lies on intersections of various traditional scientific domains and findings are usually strictly questioned by representatives of sometimes alternative schools. As R. Scott noted: an astonishing variety of approaches and sometime conflicting assumptions limits scholarly discourse (Scott, 2004). This paper examines the case of a freshly combined (reconstructed) Russian organizational model not only because it has attracted much attention both in Russia and in other countries (Shenfield, 2007; and the book of A. Prokhorov is a helpful reading indeed with good illustrations from ancient and contemporary practice of Russian entrepreneurship and management: Prokhorov, 2006, 2008) but also because Russian examples help us to define some essential features of a dynamic institutional model (Helical Institutional Development Scheme HIDS: Pyastolov, 2007b). The Russian models description When speaking generally about its economic peculiarities an observer can represent Russia as a huge organization, the idea of which was actually generated at the end of the XVI-th century (by Peter the Greats father tsar Aleksey Mikhailovich). Although many attempts have been made to transform this organization into something related to a market system since late

1980-es (if a couple of decades before WWI would not have been taken into account) it still tends to keep the old familiar form: the power-proprietorship (Nureev, Runov, 2001). Actually inherent Russian institutional (presumably in sense of formal institutes) system turned out to be so inertial and path dependent that for some time past many a specialist, even former Russian reformers, began to consider its present state more convenient for the economy and for the people than any other (Prokhorov, 2008; Yasin, 2007). This paper does not try to analyze Russian organizational phenomena within the frameworks of neither civilization nor economic growth paradigms but focuses the attention at the organizational level on the binary status of Russian institutional system which is reflected in the twofold management paradox, in the spread and settlement concept, in the two phase cycle concept in Russian organizational model and in other economic and historical phenomena. The twofold management paradox is illustrated by the obvious local processes management ineffectiveness within the Russian organization at mesoeconomic as well as at microeconomic levels and no less obvious effectiveness of its globally oriented actions. The most often cited examples from the -th century history are: the creation of comparatively efficient Red and White Armies from the chaos of 1918 Civil War; the Industry mass transfer to the East at the beginning of the Great Patriotic War in 1941; the Oil and Gas Industries creation in 1940-1980; the creation of effective military machinery in the USSR; the space exploration endeavour. The spread and settlement concept was coined by modern Russian sociologists who cited the historians of the XIX-th century: Sergei Soloviev and Vassily Klyuchevski. The historians underlined two distinct trends in Russian governmental regulation during centuries: the habit of spread in the population and the Governments desire to catch and attach (the later is also called the combatant order of the state: Medvedev, 2003: 11). According to A. Prokhorov the Russian Management Model is characterized by cluster mechanisms, the absence of competition within clusters, and the competition of administrators, parallel regulation systems, the hidden stocks (zanachki) routines, the two phases management cycle and the legal nihilism (Prokhorov, 2006). Cluster considered as a management object is a set of homogeneous units. Those are for example an artel (a co-operative association of workmen or peasants), a commune, a military unit, a brigade, a department, or just a group of comrades. As a matter of fact the goal is formulated by the administrator before the cluster as a whole. And yet the cluster is considered a black box for him. As a cluster bears collective responsibility for the result the administrator has no need to interfere into clusters internal affaires. This cluster ideology is rather helpful for the system expansion by means of mergers of other clusters with the rules of their own by the way. It is interesting to note in relation to this that Alexander I declined a proposal made by A.Baranof (the governor of Alaska at those times) to include the Hawaii into the Russian Empire by the same reasons as Alexander II (with pedantry habits inherited from his German relatives) later decided to sell Alaska to The United States: mostly because it was impossible to follow everything which was happening there. Though it would not have been necessary to do so if the tsars had followed the Russian model norms. Another interesting observation: Russian rulers came to a disaster any time they tried to act rationally and in a liberal way (Alexander II was killed by narodovoltsy Peoples Will party members, just months before he planned to offer The Constitution; the same fate awaited the reformer prime minister A.Stolypin at the Nicolay II epoch; only a little bit better was M.Gorbachev with Perestroika in 1980-es etc.). While the Russian model permits no competition within clusters of lower levels the competition of administrators is encouraged. Administrators struggle for survival of their clusters in processes of solving externally put problems under the conditions of tough administrative system. Thus made of steel Stalins ministers would realize impossible from the rational point of view projects under the threat of death sentence during the WWII.

But when in time of peace individuals, who form the cluster, usually oppose themselves to administrators. Thus cover-up and egalitarianism (wage-levelling) are dominant relation forms towards external (on relations to the cluster) challenges: depersonalization protects an individual. And as the other side of the medal competitive relations within a cluster lead towards its destruction (this was also a common knowledge for Roman conquerors: Divide et impera divide and rule!). This twofold Russian model characteristic stipulates a parallel regulation system which means that a cluster is regulated at the same time by an administrator (commander) and a parallel administrator (commissar). Examples are: temporal and ecclesiastic powers, commander and commissar in the Red Army, president of kolkhoz and secretary of kolkhoz party organization, chief and shaman in a tribe etc. Commanders goals are usually defined as providing the cluster with resources which the members can not obtain by themselves, distribution of resources, control of the resources flows within the cluster, stimulating the cluster activity. The commanders normative base: commonly adopted law, technology, program etc. Commissars functions include goal setting, ideological control of commanders activity, decision making in case if the commander is out of service. The commissars normative base: instructions of higher levels administrative bodies, revolutionary sense, the interests of the ruling class etc. these are laws of a principally different origin. The Hidden Stock (zanachka) sort of accumulations, made by clusters and their individual members not accounted by any supervising bodies, is another peculiar characteristic of the Russian model. The real hidden stock (put by for a rainy day) is mainly accumulated in natural form (unaccounted assets in factories, shops etc.), and only for a short while it might take the form of money. Although hidden stocks is an alternative of JIT (just in time) system under uncertainty conditions it might prove to be very helpful and it is now considered by some experts to be a form of system energy accumulation (Prokhorov, 2006: 278-280). This concept may be also used for explaining some of the Russian labor market paradoxes observed in the midst of 1990-es. Among those paradoxes the following is usually noted (e.g. Dmitriev, Maleva, 1997; Pyastolov, 2005). The fall of GDP has been combined with relative stability of employment and comparatively low levels of open unemployment despite of the large depth and duration of the ongoing transformation crisis. The problems of youth and long-term unemployment in Russia, were obviously less sharp, than in many countries in Central and East Europe. 4 7 - multiple break in levels of real and registered unemployment showing about weakness of stimulus to registration in state services of employment, though the Russian systems of support of the unemployed was not less, and in some way more generous, than similar systems in other countries with transitive economies. Delay of wages, canopy of superfluous employment at Russian enterprises have been numerous. Even under conditions of a deep economic crisis the Russian enterprises showed high labor hiring activity. Compelled dismissals remained exceptional, and voluntary dismissals dominated. Combination of an intensive turnover of labor force with low parameters of workplaces turnover was also registered. Such hidden stock of human capital might be considered as a potential for a proposed innovative breakthrough in Russia (and some experts still continue to think so) if it were not kept back for such a long period. When one claims that hidden stocks are usually kept for a rainy day she should have in mind that this means the day when management phases change. Thus we come to the concept of the two phases management cycle. This does not exactly correspond to the InnovatorConservative system in economic policy evolutionists are dealing with (e.g. Sukharev, 2005) but the concept suggests that the Russian models functioning may proceed in two phases which differ by subjects and objects interaction character: stable and instable. The stable phase description presumes that resources are accumulated and spread among clusters providing their survival and even well being. An external threat is immaterial at this time period and the system (a state or an organization) is gradually loosing the conception of its

mission. As it was in the Russian Army before the Crimean war (1853 -1856): besides other facts historians report that soldiers were ordered to loosen the bolts of their rifles so that they would perform a pleasant harmonic noise during executions on drill grounds (the war was lost by Russia incidentally). But in case of instable phase the mission of every cluster is strictly determined and it is usually quite serious. It often deals with guaranteeing the cluster and/or the whole system survival when there is a war threat or the system conditions worsen dramatically in comparison to the external world. The resources should be concentrated to face the major threats. Thus the parallel administrator (commissar) functions are determined: he must react quickly to switch on a new coordination mechanism so to convert the system into another phase. According to the classification under discussion market systems are determined as one phase ones and since they do not have such advantages as hidden stocks (e.g. accumulated energy) they turn out to be less competitive under the circumstances of swift (especially dangerous) changes and instability than two phase systems. Two phase systems enjoy advantages in force and in time because commissars (parallel administrators) are competent and empowered to break the rules of the old phase and to establish new ones according to a newly formulated mission (e.g. Danton, Lenin and other revolutionary leaders) and besides Russian people are ready to accept new rules (Russian history is said to be filled with impostors more than a history of any other country: the False Demetrius and others). With a more thorough look into the Russian model scheme one can find many universal elements fit for other countries. But what has really become an implicit feature of Russian organizations nowadays is legal nihilism which has developed under the circumstances of permanent instability. Sociologists and law economists report that although written laws exist in Russia they are not often used in everyday activities. Conventions, common laws based on natural norms and traditions in the most cases regulate peoples interactions in certain contexts with no universal character. Rather paradoxically the effective functioning of the two phase Russian system is based on the permanent conflict between administrators interests and the interests of the clusters which they manage. And as in the Western model those conflicts have been and are being solved according to the items of the Public Agreement in Russia they conclude this treaty daily under the conditions of the given context. And here a question arises: how members of Russian organizations should behave? Under conditions when the situation changes rather rapidly there must always be a commissar ready at hand. But if there is no commissar for everybody each person ought to become one1. It is yet a rather tiresome and sometimes dangerous occupation so not many ordinary people like it. This may be an explanation for the domination of the patrimonial hierarchical organizational type and for the urge of a national leader in Russia nowadays. In explaining the genesis of the Russian system the notions of the Territory and the Climate are used most often. It has actually turned out to be impossible to create a bureaucracy spread on a vast territory and functioning on-line. And according to the North-Thomas approach to determination of cross-sector behavior which claims that an economic system is based on the proportion of transaction and transformation (North, Thomas, 1973) one may conclude that there are too many transactions in Russian organizations and in the economy since almost every transformation should be personalized. Thus the market oriented transformation faces serious challengers in Russia. But the reformers declare and Russian people agree in the most part that: We are talking about achieving global competitiveness for the country as a whole and a fairly wide range of sectors to ensure its sustainable development and a position it deserves among the most prosperous
1

The Bolsheviks made the best of this Russian mentality feature for themselves and Lenin showed his genius once more when he declared that any house cook should be taught to govern the state. Actually there were not so many members of KGB in the Soviet Russia although the power and iniquitousness of this organization were legendary. There were just too many voluntary commissars among soviet people.

nations (Yasin, 2007: 4). So the problem can be formulated as how to minimize the costs of Russian system functioning since it can not be demolished and how to use its advantages, e.g. how to utilize the two phase cyclicity phenomenon. The theoretical background It is actually not so a simple task to represent a methodology for the two phase cyclicity phenomenon description because quite a few concepts from different domains ought to be put together. Still we suggest that the Helical Institutional Development Scheme (HIDS - Pyastolov, 2007b) might be helpful for this purpose. The first basic assumption for the HIDSs construction is that although a man is uncertain about the exact utility value of a good to be consumed he is nonetheless aware of the goods level in his personal hierarchy (in Maslows sense). To adjust the Goods Hierarchy Levels to Weberian ideal types of human behavior2 we limit its number by four. So we distinguish: S (zero level) that corresponds to survival (the implicit need of any living creature); LLG low level goods; MLG middle level goods; HLG higher level goods. Thus the Goods may be regarded as parameters of order in the multidimensional space of human choices and actions. The second basic assumption is that the consumption of a Good takes time and a certain amount of energy-information (EI) (in the simplest cases the energy-information concept is replaced by that of money). And the higher is the level of a Good the more EI is needed to consume it. Obviously an ordinary man needs more Goods of lower levels than of higher ones. So on fig. 1, where factors affecting human behavior are presented, the triangles of Goods and EI are placed together. The pyramid of Goods is wider at the bottom (the quantity of Goods needed is more here than in the higher levels) and at this level it corresponds to the narrowest part of EI angle (it takes the least amount of EI to get and to consume a Good at this level) which is open at the top. [fig. 1 is about here] Further the decision making process conditions are formulated. Complete and perfect information, sufficient time, serenity, considerable intellectual efforts are needed to make rational choices, i.e. to behave target-rationally and thus to get the desired HLG. It may be noted here that a HLG has almost no substitution as a rule, but a LLG generally has (in another case it must be reconsidered whether it is really a LLG, not a HLG a might be symbol or fetish). Then, if the decision making conditions change, the mans behavior also does so. The target rational behavior turns into whole rational (strategic), then into traditional, and affective at last. Psychologists, sociologists and economists name the factors that influence a decision making process. Phenomenological characteristics of a man who makes decisions under those factors influence can be lined up from the bottom to the top of the scheme on fig.1. (along with the cognitive vector) as follows: Bioid a man whose actions are influenced by instincts, emotions and dominants of the lowest level (affective behavior type); Executor a man whose activity is subordinated to routines, habits, is economically or technologically determined; Social man a man whose characteristics correspond to the description of SRSM, OSAM or RREEMM models3; Intellectual man a man whose characteristics correspond to the description of the REMM model.
2 3

Originally this concept was coined as social action: in (Weber, 1924: 24-25). RREEMM (Restricted, Resorceful, Evaluating, Expecting, Maximizing, Man) W.Meclings version. SRSM (Socialized, Role-Playing, Sanctioned Man) and OSAM (Opinioneted, Sensitive, Acting Man) presented in (Linndenberg, 1985).

Note that emotions are included in the set of factors that affect human behavior because they as a psychological reaction of a man in a decision making process strengthen the influence of lower level factors (Brams, 1997). Then in order to create a basis for a dynamic institutional model we should formulate the third basic assumption which is actually composed of a set of ones: 1. A Need of a certain level may be actualized only if the Good of this level exists. 2. The Mans choice whether to consume this Good or not and his behavior are affected by factors of the level corresponding to the Good. A decision about the Goods consumption is made as a result of the analysis to what extent the personal rules coincide with public institutes. The decision will be positive, if needs and personal rules of the subject (a) do not contradict informal institutes (everybody does so), (b) do not contradict formal institutes (the law does not forbid this), (c) will ensure such performance of the decision, that the results will benefit to the subject and will not do much harm to other people, (d) will ensure such performance of the decision, that the results will bring harm to other people and advantage (benefit) to the subject, but the subject decides to use the right of force. The conditions (), (b) define conformity (or submission) of personal rules to strong institutes, condition (c) - to weak institutes. The presence of a Written Rule by itself does not provide stimulus for acceptance of the decision. 3. As a rule, the subject does not spend more EI on process of acceptance of the decision about consumption of the Good, than it is required for its consumption. 4. There is a positive dependence between quantity and rigidity of institutes and quantity of objects (Goods) of the appropriate level. 5. A Man estimates the utility of an institute for himself depending on to what extent it is useful to him in consumption of appropriate Goods. While speaking about a decision making process one can not help mentioning the contradiction between the formal coordination ethics and the normative ethics of values. This problem known also as the contradiction between the business ethics and Kants ethical imperatives may also be judged under the I-st basic assumption (the assumption of Quantified Goods). The Goods in this case can be regarded as parameters of order that influence the processes of coordination in transition from one EI level to another. The idea is not actually new (W. Jevons, K. Menger and other scholars ought to be praised for their contributions). But one can not yet formally describe the coordination mechanism when values and beliefs are changing. This takes place in transitive economies or when we are considering educational phenomena. Actually one seeks answers to the following questions: A. B. C. At what moment and under what conditions beliefs of certain individuals become public value? At what stage of a decision making process the coordination of actions of the subject with the requirements of the convention happens? What are the conditions under which such informal mechanisms of coordination are most likely to emerge and be maintained?4

D. How such mechanism is changing and whether it is possible to foster its development by legal means? With the help of assumptions formulated above we can create a new scheme that will allow us to evidently express changes of individual values, preferences and beliefs and also how a mutual influence each of these factors and public institutes (formal and informal) is realized.
4

The initial formula of the questions A-C can be found in (Khight, 1998).

And thus to find the desired answers. We can see three groups of incorporated objects on the figure 2: [fig. 2 is about here] Group A: The hierarchical structure of the Goods which consumption satisfies the peoples needs; Group B: The types of human behavior models which may be useful under different conditions (i.e. various degrees of uncertainty); Group C: The types of Public Institutions which regulate the human behavior under various degrees of uncertainty. The types of coercion, which also are shown on the scheme, do not form a separate group of elements but show the ways the institutes form different kinds of human activity. The same remark refers to the types of motivation5. There are also several dimensions shown on the scheme. First of all the space on fig.2 is divided in two domains: that of Individuality (where the individuals thought activity is shown) and the Social domain (where one can see the factors which affects the relations between the individual and the society). The area of the Ideal World and the areas of the Material world and the World of Objects are designated also. These are the worlds constructed according to Platos interpretation: The Idea and The Matter. The breakthrough of the Ideal World amidst (in boundary area) the Material world and the World of Objects deserves a special comment. It might be considered illogic especially if one would approach the consumption of HLG. But we will not find any contradiction if we consider for example some religious doctrines. Thus the creation of The Kingdom of God on Earth in Christianity means in fact the total reorganization of human activity, the Buddhism teaches how to overcome the physical human nature for the sake of the Enlightenment and so on. And the secular ethics would highly appreciate mans spiritual achievements only if they do not contradict social norms. And moreover if a man would seek some spiritual enjoyments outside social ethics and if he would not even do any harm to other people (e.g. taking drugs for himself) it will not be considered a Good neither for the man nor for the society. Numbers on fig.2 (in circles) correspond to the stages of the representations, norms, rules and institutions emergence and maintenance process: 1 First stage: a Want is being actualized. Note: the multitude of Wants that can be actualized is determined by the multitude of norms and rules of the corresponding level that the individual posses. An object can not be a motivation by itself6. 2 Second stage: the target function determination (the decision about the means and the ways of meeting oneselfs Needs is being made; the Goods, that are to be consumed to meet the Need are estimated ex ante)7. This forms the answer to the question B. 3 Third stage: actions are being undertaken in order to get and to consume the Goods8.
5 6

The types of motivation are borrowed from (Etzioni, 1961). It is important to note, that individuals believes, norm and the rules determine a set of needs of the appropriate level, which can be actualized. The decisions can not be imposed to the individual from the outside, even if they are rational. 7 The personification of a thing occurs at this moment as well as the materialization of an image of the subject. The matter has been thoroughly studied in traditional Marxist philosophy which actually pays much attention to the categories of Thing, Object, Vergegenstndlihung, Versachlihung (reification), Entuserung and Entfremdung (alienation). But this very stage of a decision making was somewhat omitted in description of the corresponding processes or mixed with reification. In the classical economic theory they did not take it into account either. 8 At this stage the process of reification takes place, and the working process accepts the social form. At the given stage the human subjects by interaction with the forms of culture, symbols and other institutes, become public

4 Forth stage: the utility of the consumed Goods is estimated (ex post)9. 5 Fifth stage. At the given stage the individual estimates the marginal utility of a subject (object of the convention), taking into account the EI volume which he receives as a result of consumption of the appropriate Good, or loses, if it is a negative Good (antigood). As a result of the process of the Goods dematerialization the preferences and beliefs of the man are formed and developed: 5a If the utility is negative the man has not got the desired Good and/or has been punished (has got an Anti-Good), the individual rule or norm which has had been in the basis of the Need actualization and the decision making is being deactivated and is going to the subconscious level (but it never completely disappears); 5b If the utility is positive the individual rule or norm is being secured in the Subjectus normative individual structure. The rule becomes fixed in the active normative matrix for the long run if the Subjectus gets enough experience of receiving Goods as a result of following the rule or norm. One can recognize the Hegelian triad elements at every stage of a decision making in the scheme on fig.2. Hence the formation and development of individual values and beliefs processes may be regarded as rational, i.e. the subject of such sciences as New Institutional Economics (NIE). So microeconomic concepts and algorithms such as Bayesian or others from the Game theory can be used to describe the processes. A helical movement can be recognized in sequence of stages on fig.2 which might be described as the pivot mechanism (Kreps, Wilson, 1982) or according to the authors interpretation the Helical Institutions Development scheme (HID). The spiral is twisting inwards if the development of representations, beliefs and institutes follows the way 5a, the quantity of conventional objects appropriate to HLG decreases, the institutional field is narrowed. The quantity of objects of the civil and the market conventions is reduced, first of all. And as a result the share of shadow economy sector grows. The reduction of quantity of legal institutes that ensure access to the Goods of the higher levels, results in reduction of density of distribution of personal beliefs at the same levels10. The sociological researches show a decrease in the generalized parameter of trust in a society that means above all - trust to the government and to legal norms (Pyastolov, 2005; Pyastolov, 2007a). Consequently it results in a reduction of a legal transactions quantity and in a decrease of their total number as well. The spiral is untwisting outwards, if the development of representations, beliefs and institutes follows the way 5b. It means that the personal beliefs and values with a greater probability become parts of public institutes (See question A). And it is a self supported process: the strengthening of public institutions opens access to the Goods of higher levels. As transactions result in consumption of a HLG they form and strengthen the appropriate personal
subjects . The relations between the people take the form of the relations between things, this phenomenon is frequently called as fetishism of the subject forms in Marxists theories. They also used to consider a non-material form of such a reification, however a philosophical judgment of century science achievements, the idea of the material essence of energy and space-time first of all, forces one to consider the reification as a uniform process. 9 It is not so easy to distinguish a border between stages 3 and 4 in real processes of manufacture - exchange consumption. But the duality of the concept of labor might be useful in this case. And one should also take into account that the value of a thing could not be estimated until it takes the form of a subject, i.e. becomes the matter of a convention. Hence, it is possible to consider the end of the dematerialization of the Good process as the end of stage 3, and beginning of the process in which human abilities become an object - as the beginning of stage 4. Obviously a question arises here: in what form does our object exist while in transition from stage 3 to stage 4? The answer may be that the EI is the intermediate substance. The analogy with the ether idea in Physics seems to be quite pertinent. The EI is an equivalent of efforts spent by the man on searches of the information, estimation of utility and consumption of the Good. It is a monetary equivalent in the simplest case. When coming back to the problem of the contradiction between the cost and the value of the Good we may just consider it as the problem of different estimation values of EI at the stages 3 and 4. 10 The idea proposed by such NIE scholars as R. Posner, S. Goldman S., S. Norton etc.

preferences and beliefs11. Moreover the growing level of trust in a society (community) increases probability of positive synergy effects. This must be the most probable answer to the question D. Let's note also some other properties of HID: i. The movement from one group of elements to another in the HID format is carried out clockwise only. Thus, for example, the preferences (beliefs) of an individual, can not be generated under influence of the right of force, informal or formal social norms, and even of logic. However preferences can appear as a result of experience under influence of various kinds of stimulus as an opportunity to receive the appropriate Good (or AntiGood), and also can be inherited from the parents or the society (community) (as a result of education). Consequently the ex post mechanism of coordination dominates during the formation of new institutes process (import and - or legalization) because the appropriate qualities of the human capital are not yet generated. The following formulation of this property is known in NIE: it is possible to consider any institution both as a means and as a consequence of the formation of expectations and preferences; the institution creates its own stability by forming expectations and preferences.

ii.

The elements of two neighboring groups only can cooperate in the decision making process in a transition from one stage to another. So, for example, presence of any of the possible Goods (the presence of the information about an opportunity of reception of the Goods) can not by itself cause occurrence of effective public institutions, excluding the phase of appropriate individual preferences and beliefs appearances and, then the occurrence of public conventions. Consequently the coordination of individual actions can be carried out on the basis of common expectations, beliefs and values (mechanism of coordination ex ante) only in developed societies (communities) with established institutes. The HIDS Applications to the two phase phenomenon Other research domains that lye close to decision making and institutional development theories are the economics of knowledge and knowledge management. The scholars whose contribution should be praised here are H.Simon (for the studies of informal layer of specific organizational culture among others), K.Arrow (for the studies of correlation between information and knowledge), M.Polanyi (for the tacit knowledge concept development) P.David, R.Cowan, D.Foray (for their version of knowledge topography) and others. Concerning the two phase phenomenon description within the frameworks of HIDS we are mostly interested in the construction of an institutional space where knowledge is generated, accumulated and multiplied. After D.North (North, 1990) we regard institutes as carries of historical experience, i.e. knowledge of a community, organization, or people. Thus the epistemological and ontological coordinates for the knowledge cognitive level offered by A. Lam (e.g. Lam, 2002) might be found rather helpful for an institutional space mapping. But I suggest that according to the helical representation polar coordination system will be more convenient. Hence in interpreting the HIDS on fig.2 one can determine a cognitive vector starting from point 1 to the sector B direction. The characteristics of this vector can be taken from the description made by D.Kahneman (Kahneman, 2003) similar description was partly made in this paper when fig. 1 was presented. Another dimension of the space under construction is phenomenological which is unwrapping along the angle of the polar coordinate. As a generalization of different types of knowledge formation learning processes and techniques as well as modes of information and knowledge transfer in a society are presented as corresponding elements of HIDS on fig. 3. [fig. 3 is about here]
11

Among the proponents of the thesis are R.Ellickson, S. Sandefur, E. Lauman and others.

It is essential to note that the direction of the cognitive vector corresponds to the direction of the EI growth in individuality domain and one can interpret the corresponding levels in the social domain as those of synergy. In learning by study when explicit knowledge is being formed a learning individual uses logic and his behaviour is close to target-rational. On lower EI levels knowledge of experience12 is being formed. The predetermined place for information technologies is in the social domain and they are placed on higher synergy levels because logic implicit in algorithms is used to code and decode the information. But one should also have in mind that since information transfer needs symbols an imaginary thinking is engaged in this process. This is especially true when it concerns hieroglyphs. It is difficult to say that knowledge is encoded (verbally expressed) in this case; it is more likely to have been pictured and presented as a set of images. Thus the border between the knowledge transfer by information technologies and the learning by penetration of images (in implicit form, not verbally) is rather provisional. The role of an organization in connection to the matters discussed consists of creating new knowledge as a result of implicit and explicit types of knowledge interpenetration. This new knowledge might be expressed in new product or service characteristics, new information or new human capital qualities. Hence an organization can be determined as a social and economic coordination system which mission is to create conditions for interaction and interpenetration of different knowledge types in order to achieve socially significant goals and to create a new knowledge in particular. Then as a development of M. Granovetter (Granovetter, 1985) and A.Lams (Lam, 2004) theses about social embeddedness of firms internal knowledge HIDS offers an explanation of the dynamics of organizational types in interaction with knowledge based society structures (fig. 4). [ fig. 4 is about here] The K.Polanyi concept of transformation (Polanyi, 1947) presumes that changes in social and economic structures in order to be successful must be followed by the changes in peoples minds13. Hence parallel administrators from Russian two phase model besides other goals ought to solve a problem of reshoeing of the clusters human material. World history offers quite a few examples of particular goals of such kind and of methods used. The hammer as a symbol on State Emblems of Austria, Soviet Union, and China serves this particular purpose. The reshoeing of human material means education and training above all. HIDS explains these processes in a form of phenomenological educational spiral: [Want] (1) [Motive] [Need] (2) [Image of the Object (to be consumed)] [Object] (3) [The Idea of the Good] [Energy Information] (4) [Consumption of the Good] (5) [New Motive: 5b strengthening; 5a - weakening] (numbers in brackets signify the stages of the decision making process on fig. 2). The effects of interaction between society institutional structures and households economic strategies were discovered in our survey (Pyastolov, 2005; Pyastolov, Soudarev, 2008), and the direction of strategies development (from a destructive to innovative) was found to correlate with the direction of depersonified trust vector development but not with the utilitarianism one (yet the later norm serves as in indicator of the probability of a households strategy change). This means that innovations more often take place at the lower levels of rationality if it would be connected with utilitarianism. Obviously one observes more utilitarianism in bureaucratic organizations than in those of operational adhocracy or J-organisations (the least
12

The term knowledge of experience was coined by I.Nonaka (Nonaka, 1994). To separate labor from other activities of life and to subject it to the laws of the market was to annihilate all organic forms of existence and to replace them by a different type of organization, an atomistic and individualistic one (Polanyi, 1947, ch. 14).
13

amount of utilitarianism can be seen in Russian clusters). Thus a paradoxical feature is revealed: the more is the organization level in a society the less is its ability to generate, accumulate and propagate tacit knowledge. Hence while internal colonization of a new convention is taking place knowledge is generated and accumulated. Then as the space the knowledge can occupy is filled up organizational forms are to be changed in quantity as well as in quality. Under the transformation (it means a change of public conventions first of all) the societys machine bureaucracy is turning into an operational adhocracy which is presumably true for clusters as well. But furthermore the system would follow the law of the entropy growth if the economic behaviour patterns would not be regulated by common norms (ideas). Some experts diagnosed Russian peoples state of conscience from the midst of 1990-es and up to nowadays as schizophrenia: the split mind. Actually on the one hand the possibility to gain profit and to have a rich consumer choice attracts people but on the other hand they do not wish to part with state guaranteed income equal distribution, economic and social security etc. If presumably the two phase development cycle is inherent to our society within the Russian model frameworks hence an external threat is necessary for a progressive development. But this is only possible in the form of expansion. The expansion forms were either territorial or ideological in different periods of history. Without such a possibility the two phase system is to become a one phase one. And since the space for expansion is in question such a transformation is inevitable. The experience of the latest decades prove that a society can not reach a free market convention from the point where Russian economy was situated in an institutional space before the reforms of 1990-es (it can be actually described as a symbiosis of a command economy and a power-property system) directly (by a leap = shock therapy) (fig. 5). The HIDS can interpret such an attempt as an effort to move counter-clockwise: from a market institutions import to a creation of new preferences and believes i.e. representations in peoples minds. [fig. 5 is about here] The discussed above duality of Russian institutional system, the two phase nature of the management cycle caused the choice of a clanship organizational types during the short period of stability characterized first of al as a seeming absence of external military and political threat. The prevalence of kinships and clanship organizations in Russian economy preconditioned the inward helical movement in the institutional space so that the trajectory almost reached the subsistence core (see fig. 2). The sociologists reported that level of trust among the Russian population fell as low as 34% and film producers would name this time as a glacial epoch. The mortal threat (that meant in particular increasing mortal rates for the people and the death of the Russian Federation by scattering of its regions for the government) made Russian people accept the switch to the bureaucracy management mechanism undertaken by president Putins team. This development trend might signify that the national organization is again trapped in the Instability Stability (or Threat No Threat) dilemma. Will there be other steps further out of this trap towards a market convention? The HIDS suggests that there may be not so many alternatives: one way is through the learning society model to an organized society (the history of Chinas transformation is regarded as a good national example in this case) another is the way back to the command system (an industrial convention will dominate among others in this case). Conclusion The two phase cycle concept in Russian organizational model thus is proved to be special among peculiar phenomena concentrated in a rather short time period and in Russia (e.g. Russian labor market paradoxes). The changing economy cases need a dynamic theoretical approach

which is realized in the form of the proposed Helical Institutional Development Scheme (HIDS). The paper argues that the HIDS shows the direction in which the dynamic institutional and organizational theory is developing: from the analysis of situations with the stable certainty (complete and perfect information) to the stable uncertainty and then to unstable uncertainty cases where peoples preferences and beliefs are changing. It also may explain some of so called quantum effects in human behavior occurring during these processes of change14. As the world economic history demonstrates successful market economies and organizations tend to choose one phase management cycle models. Within the frameworks of the HIDS the paper offers an explanation for the two phase cyclicity of the Russian model and recommendations for successful management. This means that an exit from the organizational development traps of Instability Stability types (which turn to be an equivalent to the Threat No Threat) is possible in the form of an organized society under the conditions of unifying values and expectations generation.

References: Brams S.J. (1997) Game Theory and Emotions. Rationality and Society, 9, pp. 91-124. Dmitriev M., Maleva T. (1997) Russian Labor Market in Transition: Trends, Specific Features, and State Policy - The Future of the Welfare State: East and West. http://findarticles.com/p/articles/mi_m2267/is_n4_v64/ai_20339797. Last assessed: 24/01/08. Etzioni A. (1961) A Comparative Analysis of Complex Organizations. New York: The Free Press. Granovetter M. (1985) Economic action and social structure: The problem of embeddedness. American Journal of Sociology, 91 (3): 481-510. Kahneman D. (2003) Maps of Bounded Rationality: Psychology for Behavioral Economics. The American Economic Review, v.93, # 5, pp.1449-1474. Knight J. (1998) The Bases of Cooperation: Social Norms and Rule of Law / Journal of Institutional and Theoretical Economics (JITE), vol.154, p.754-763. Kreps D., Wilson R. (1982) Sequential equilibria // Econometrica, v.50, pp.863-894. Lam A. (2002) Alternative societal models of learning and innovation in the knowledge economy. http://www.druid.dk/uploads/tx_picturedb/ds2002-621.pdf. Last assessed: 21/01/08. Lam A. (2004) Societal Institutions, Learning Organizations and Innovation in the Knowledge Economy. From Lundvall, B.A. et al (eds.) Product Innovation, Interactive Learning and Economic Performance. Linndenberg S. (1985) An Assesment of the New Political Economy: Its Potential for the Social Sciences and for Sociology in Particular//Sociological Theory. Spring 1985, p.99-113. Medvedev S. (2003) Rethinking the National Interest: Putins Turn in Russian Foreign Policy. The Marshall Center Papers, No. 6. http://www.marshallcenter.org/site-graphic/lang-en/pagepubs-index-1/static/xdocs/coll/static/mcpapers/mc-paper_6-en.pdf. Last assessed: 24/01/08. Mintzberg H. (1979) The Structuring of Organizations: A synthesis of the research. Prentice-Hall, Englewood Cliffs, N.J. Nonaka I. (1994) A Dynamic Theory of Organizational Knowledge Creating. Organizational Science, 5, pp. 14-37.

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Naturally conventions, not law, tend to guide and constrain the human behavior in contemporary Russia. But it is now obvious that informal norms form certain types of institutional lacunas that one can observe while monitoring different social strata (Pyastolov, 2005; Pyastolov, 2007a). So the uncertainty that a Russian citizen has to deal with is in fact quantified. The psychological and other problems occur when a subject is forced to move from one quantum level to another.

Nonaka I., Takeuchi H. (1995) The Knowledge-Creating Company. Oxford: Oxford University Press. North D. (1990) Institutions, Institutional Change and Economic Performance. Cambridge UP. North D., Thomas R. (1973) The Rise of the Western World. Cambridge University Press. Nureev R., Runov A. (2001) Russia: Whether Deprivatization is inevitable? Power-Propeerty Phenomenon as a Path Dependence Problem. Paper for ISNIE-2001 5-th Annual Conference Institutions and Governance USA, Berkeley, California, September 13-15, 2001. http://www.isnie.org/ISNIE01/Papers01/nureev-runov.pdf. Last assessed: 20/01/08. Pihl H. (2002) A new organizational form in multinational enterprises from M-form to W-form. http://www.aueb.gr/deos/EIBA2002.files/PAPERS/W21.pdf. Last assessed: 24/01/08. Polanyi K. (1947) The Great Transformation. The political and Economic Origins of our Time. [in Russian]. St. Petersburg, Altheia Publishing House, 2002. Prokhorov A. P. (2006) Russkaya model upravleniya [The Russian Model of Management]. Moscow: Eksmo. Prokhorov A. P. (2008) The Russian Management Model: Hidden Reflections. SKOLKOVO books. Pyastolov S.M. (2005) Russian Households Labor Supply Peculiarities. Voprosy Economiky, 8, pp.124-138. Pyastolov S. (2007a) Norms as Educational Quality Indicators. Proceedings of the Fifth International Conference on New Horizons in Industry, Business and Education, 30-31 August 2007, Rhodos island, Greece, pp. 64-70. Pyastolov S.M. (2007b) Prospects of the Theory of Prospects. Voprosy Economiky, 12, pp.4360. Pyastolov S.M., Sudarev O.I. (2008) Evolyutsioonaya model economicheskogo sybyecta [The Evolutionary model of the Economic Subject]. Paleotype, Moscow. Scott R.W. Institutional Theory: Contributing to a Theoretical Research Program. http://icos.groups.si.umich.edu//Institutional%20Theory%20Oxford04.pdf. Last assessed: 23/02/10. Shenfield S. D. A Russian Managerial Model? // http://www.cdi.org/russia/Johnson/2007-144.cfm. Last assessed: 12/02/10. Sukharev O.S. (2005) Institution Efficiency and Quality of Economic Development. Paper presented at the 6th International Symposium on Evolutionary Economics (Pushchino, Russia 23-24 September 2005). http://www.ephes.ru/archive/sukharev2005.pdf. Last assessed: 21/01/09. Yasin E. (2007) Modernization and the Society. Paper for the VIII International Academic Conference Modernization of Economy and Public Development April 35, 2007, Moscow. http://d1.hse.ru/data/721/325/1234/aprconf%D0%AF%D1%81%D0%B8%D0%BD_MD. pdf. Last assessed: 12/02/10.

Fig. 1. Factors that determine Mans economic behavior.

Fig.2. Illustration of the representations, believes, norms and institutions emergence and maintenance process (HIDS: Helical Institutions Development Scheme).

Fig. 3. The different types of knowledge formation within the HIDS framework.

Fig. 4. An explanation of the dynamics of the knowledge based society structures within the HIDS framework.

Free market

Clanship

Bureaucracy

Russian model

Fig. 5. Possible ways for a market oriented transformation.